The terms “debit” and “credit” are enough to induce fear in even the most intrepid non-accountant. But even though you may never become an accountant, you will need to understand these concepts in order to have a solid grasp of accounting and business. In this chapter you’ll learn what these terms mean and how they are used in the world of accounting. … Read More

After analyzing the Balance Sheet and the Income Statement for Solana Beach Bicycle Company, Samantha had a clear understanding of what her business owned and what she owed, as well as what its “bottom line” is for the year. Although things are looking good so far, Sam has a nagging concern, which she raises at a meeting with her business advisor: … Read More

The Income Statement presents a summary of an entity’s Revenues (what the company earned from sales of products and services) and Expenses (what was expended to earn this revenue) for a specific period of time, such as a month, a quarter, or a year. This period of time is known as the accounting period. One key difference between the Income Statement and the Balance Sheet is that the Income Statement reflects a period of time rather than a single moment in time as with the Balance Sheet. The Income Statement is also called a Statement of Earnings or a Statement of Operations. … Read More

Businesses and nonprofit entities use double-entry accounting. But I’ve never met an individual who uses double-entry accounting in personal bookkeeping. Instead, individuals use single-entry accounting. For example, when you write a check to make a payment on your credit card balance, you undoubtedly make an entry in your checkbook to decrease your bank balance. And that’s it. You make just one entry — to decrease your checking account balance. It wouldn’t occur to you to make a second, companion entry to decrease your credit card liability balance. Why? Because you don’t keep a liability account for what you owe on your credit card. You depend on the credit card company to make an entry to decrease your balance. … Read More

Every balance sheet transactions recorded by the company, alters its Balance sheet. For investors, it is interesting to understand balance sheet transactions of companies. Though the understanding of balance sheet transactions is not essential, but its knowledge helps.Referring to the Balance Sheet in Figure 3.4, let’s examine the transactions that created it. … Read More

The accounting balance sheet is an important element of any company’s financial position. In fact, balance sheets are often called the statement of accounting position. The balance sheet presents the company’s financial records at a particular moment in time – a “snapshot” if you will of the finances at that moment. There are three main elements or components of any company’s balance sheet. … Read More